Difficulties in measring national income

There are certain difficult in the measurement of national income.Simon kuznet had pointed out four difficulties in the measurement of national income,of which three problems have been resolved.Only the fourth problem has not been satisfactorily resolved.The difficulties pointed by Simon Kuznet on the measurement of national income are explained below :

1. Problem of double counting :The problem of double counting may arise in the measurement of national income.Because,the same commodity may be an intermediate good as well as a final good. If the tobacco is used in making cigarette,it is an intermediate good.The double counting of same good does not provide the accurate picture of national income.Hence,the economics have suggested that only final goods should be included in national income.
2. Transfer payments :The unemployment allowance,pension,interest on public debt provided by government is called transfer payment.Likewise ,the transfer of money between different persons and the taxes paid by people to the government may also be called the transfer payments.The transfer payment must not be included in national income.
3. Income generated by foreign firms :Whether the income generated by foreign firm should be included in the national income of the country in which they are located or in their own country is another problem.The suggestion of IMF,in this regard,is that the income generated by foreign firms should be included in the national income of the country where the production takes place.
4. Public services :Another problem is whether the public services like general administration,public,army services should be included in national income or not.Some countries included them in national income as the final service.Since,these services are not production sector,some countries do not included them in national income.
5. Calculation of depreciation :The depreciation fund should be deducted to find the NNP.Since the depreciation charge differs from commodity to commodity.It is difficult to calculate the total amount.It is also difficult to calculate the present depreciation rate of the capital goods having long life.
6. Inventory revaluation :If the price increase over the year,the profit in inventory increase,but the replacement cost of such inventories also increase.Such benefit are included in business profit.But such increase should be dedicated while calculating national income.Whether the inventory change in negative or positive that is included in GNP.Hence,inventory valuation is necessary to calculated the GNP accurately.
7. Capital gains or looses :When the market price of capital assets changes,the owners make capital gain or loss.Such gains or losses are not included in GNP.Because such changes do not occur from presented economics activities.
8. Change in the value of money :The value of money changes from time to time in accordance with the changes in general price level price level.If the relative value of the purchasing power of money of two years is not known,it is impossible to compose the national income of different years.For example,if the prices are rising ,the national income seems to be increasing even if the production is decreasing.Since index number shown the purchasing power of money in difficult years,the helps of index number taken.